5 Things Your Bank Doesn’t Want You To Know About Home Loans
The current Australian housing market is in a state of flux, with many suburbs emerging as hotly contended areas and prices in markets such as Sydney and Melbourne reaching record highs. With so many people looking to break into the real estate industry and secure their own piece of the action, there’s a very competitive market for banks and mortgage brokers who are looking to lock in new customers.
Many people don’t realize the position of power they’re actually in when they approach a bank for a mortgage, as they’re so focused on ensuring they get the outcome they’re looking for of the funds required to purchase their dream home. However, the financial decisions made during the mortgage loan process are fundamental when it comes to setting up your financial future and the way your funds will flow over the course of up to 30 years as you pay that very mortgage off! By doing your research, taking back your power and understanding the tools at hand, you’ll be well positioned to approach the bank with confidence about your needs, your abilities and what they can do to service them best. Too many people say yes to the first interest rate, fees and repayment structure they’re offered, when in fact, everything is up for negotiation.
Here are some crucial areas to examine when applying for your home loan…
1. The power of negotiation
If you took a quick poll, many everyday people would be under the assumption that bank rates are fixed at the advertised price. However, this is certainly not the case in reality. The crucial idea to understand when negotiating with a bank is the principle of supply and demand – although the bank is the source of your supply, you’re the source of demand, and as such, they need you in the same way that you need them. Many of these lenders have teams that are focused on customer retention, and you’d be surprised at just how far lenders are willing to budge in order to keep your account within their walls. Even a rate reduction as seemingly small as 0.5% can lead to a great amount of savings over the course of your loan that you’ll notice on a regular basis.
Of course, applying for a home loan can be a daunting process, and you may not feel you’re in a position where you’re best equipped to negotiate these areas yourself. This is where the power of a great mortgage broker becomes your strongest asset, as they can enter into these negotiations on your behalf.
2. Lender fees
This is an area which can often take people by surprise when they’re applying for a loan – not the loan terms themselves, but the associated fees which are incurred just by opening that loan up and continuing to service it from year to year.
Mortgage brokers are one such area where the fees that come with the process can catch you off guard. However, many great mortgage brokers have no standard fees, and instead make their commission from the lender who provides the loan. It’s in your best interest to shop around until you’ve found a mortgage broker who works on this no-fee system, as they’re also motivated to work harder for your loan in order to secure their payment. It’s a win-win situation!
As well, once you’ve got a mortgage broker on your team who can go in to bat for you, they’ll be able to advise you of the full range of products available on the home loan market, guiding you away from high-fee loans towards loans with a fairer fee structure that won’t cause so much damage to your back pocket.
3. The size of your deposit
Amidst the doom and gloom of 2017’s house market headlines, declaring that the millennial generation will ‘rent for decades’ because of the increasing difficulty to break into the real estate market, there are some well kept secrets… you don’t always need as big a deposit as you think!
Too many people, especially younger people, believe they require a full 20% deposit before they can even think of stepping foot into an open home. In fact, this is not the case. Many home loans on offer are able to take low deposits, and in some extreme cases, no deposits, depending on the specific property, the applicants and the terms of the loan.
If you’re embarking on a purchase with a low-to-no deposit, it’s well worth your time to engage a mortgage broker. A well trained mortgage broker will be intimate with the variety of options available to you and can save you time and heartache by working with banks who offer loans on low-deposit terms in order to find a viable solution.
The irony of a home loan is, by its very nature, how very permanent it sounds. 30 years of monthly payments with no wiggle room? Not quite! Of course, many banks would prefer you’re not quite aware of how many options are available to you when it comes to refinancing, as it takes more money out of their pocket and puts it back into yours as you grow aware of your options and pursue a cheaper loan structure.
Although you may consider refinancing your loan with another lender in order to take advantage of competitive rates and terms, the added bonus with exploring a refinancing proposition is that your current bank will need to work harder in order to retain your mortgage. You may find that suddenly they’re more willing to shave some of the interest rate applied to your term in order to reduce your regular mortgage repayments.
You’d be surprised at how significant these cost savings can become if you’ve structured your loan in a way that’s smart and reflective of current market conditions. However, this is another area where you don’t need to do this on your own – a strong mortgage broker will be able to negotiate this on your behalf in order to lock in the best rate available.
5. Your personal credit history
Credit histories are another ‘scary’ area that often put people off pursuing a home loan in a misguided manner. Sure, having a credit history with some negative marks on it will make getting a loan more difficult, but it’s not impossible to do so.
There are lenders out there who are willing to provide you with a competitive home loan regardless of a stain on your credit history. Many of the bigger banks will try to use a bad credit history against you in order to lock you into higher fees and rates, but by enlisting the help of a mortgage broker, they’ll be able to steer clear of falling into these pitfalls and enter into personalized conversations with vendors who are willing to work with you regardless of your history.
If you believe your credit history may be holding you back from applying for a mortgage, it’s time to talk to a mortgage broker to get a clear understanding of your full financial picture. Perhaps you’ll be sitting in your own backyard with a celebratory drink far sooner than you’re imagining!
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